Leading Indicator Falls in March
April 22, 2005 - A major indicator used to predict future economic activity fell in March, a sign that economic expansion in America may be slowing.
The Conference Board, an economic think-tank in New York, announced on Thursday that its leading economic indicator for March fell 0.4% to 115.1, after moving up slightly in February.
Used to predict economic activity for the coming six months, the leading indicator is derived from ten separate measurements. Last month, only two of the measurements improved: interest rate spread and new orders for consumer goods. Of the eight measurements that fell, weekly initial employment claims and building permits were the hardest hit, declining 0.2% and 0.08% respectively.
"What we are seeing is occasional--but not consistent or sustained--weaknesses in the economy," said Ken Goldstein, an economist at the Conference Board.
New orders for non-defense capital goods, which fell 0.01% last month after two consecutive months of gains, is telling of the economy's direction, said Goldstein. "What we could be seeing is that businesses are reluctant to invest, and that business leaders may be losing their confidence."
Business confidence, as well as consumer confidence, has the greatest affect on the economy, said Goldstein.
"While there is a lot of talk about gasoline prices rising, the bigger issue is business confidence," he said, noting that the soft patch last October was caused by a loss of confidence, not by oil prices topping $55 a barrel.
The logic that rising energy prices lead business leaders to lose their confidence is over-hyped, said Goldstein. "Small changes in price have small impacts. Think about it: If gas at the pump goes from $2 to $2.25, a person is out $3. That's not going to drive too many people crazy," he said.